LB Business Pty Ltd v Feng [2024] ACTSC 102

Catchwords: CIVIL LAW – PRACTICE AND PROCEDURE – Application for order relating to payment to be stayed pending the determination of separate proceedings – whether application seeks stay of orders or freezing order – consideration of Court’s power to make freezing order – consideration of legal principles applying to freezing orders – enforcement of orders stayed pending further order Legislation Cited: Court Procedures Rules 2006 (ACT) rr 6, 221, 230, 700, 743 Land Titles Act 1925 (ACT) s 108 Supreme Court Act 1933 (ACT) s 20 Trustee Act 1925 (ACT) s 6 Cases Cited: Deputy Commissioner of Taxation v Gashi [2010] VSC 120; 27 VR 127 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR Parties: LB Business Pty Limited (ACN 638 883 744) as trustee for Bright Property Group (Plaintiff) Lihua Feng (First Defendant) Phoenix Holdings Group Limited (ACN 636 224 430) as trustee for Phoenix Investment Trust (Second Defendant) Representation: Counsel D Robens (Plaintiff) J O’Sullivan (First and Second Defendant) Solicitors McGilvray (Plaintiff) Gells Lawyers (First and Second Defendant) File Number: SC 497 of 2023 BALLA AJ: Introduction

1. On 1 December 2023, the plaintiff, LB Business Pty Ltd (ACN 638 883 744) (“LB Business”) as trustee for the Bright Property Group Trust (“the Trust”), commenced proceedings against Lihua Feng as first defendant and Phoenix Holdings Group Pty Ltd (ACN 636 224 430) as trustee for the Phoenix Investment Trust (“Phoenix”) as second defendant (“the substantive proceedings”). The first defendant is the sole director and secretary of Phoenix.

2. The proceedings were listed before me for the hearing of an interlocutory application filed by the plaintiff on 21 February 2024 for various orders, the effect of which would be for the plaintiff to retain money which would otherwise be payable to Phoenix until the substantive proceedings have been finalised (“proposed Orders 1 and 2”) and an order for the name of the plaintiff to be changed (“proposed Order 3”).

History

3. The Trust was created by a trust deed dated 13 May 2020 (“the Trust Deed”). It is a fixed unit trust, with 100 units.

4. The substantive proceedings raise two issues. Firstly, the plaintiff seeks a declaration as to which of the first or second defendants is the unit holder in the Trust. This uncertainty arises because, in the Trust Deed: (a) Clause 1 provides that the unit holders are: (i) Bin Chen; (ii) Lihua Feng; and (iii) Yilong Liu. (b) Clause 3 recites that the trustee had issued units to the initial unit holders as specified in the Schedule to the Trust Deed. That Schedule provides the unit holders are: (i) Bin Chen and Lily Chen as trustee for the BL Group Trust; (ii) Phoenix; and (iii) Yimoyi Family Holdings Pty Ltd as trustee for Yimoyi Family Trust.

5. The second issue pleaded in the substantive proceedings arises out of the purchase of land by the plaintiff in Hume in the Australian Capital Territory in 2020 (“the Land”). The plaintiff says it purchased the Land in its capacity as trustee of the Trust and was intending to develop and construct a commercial warehouse for the benefit of the Trust and to fulfil the purpose for which the Trust was established.

6. On 18 August 2022, the first defendant emailed the plaintiff and said: I, sole director and secretary of the Phoenix Holdings Group Pty Ltd, trustee for Phoenix Investment Trust, hereby, apply on behalf of the Phoenix Holdings Group Pty Ltd, trustee for Phoenix Investment Trust, for redemption of all the units Phoenix Holdings Group Pty Ltd holds for the Phoenix Investment Trust in the Bright Property Unit Trust in accordance with the Clause 28 of the Unit Trust Deed of the Bright Property Group.

7. A dispute arose in relation to the redemption price. Proceedings were commenced in this Court on 11 November 2022 (“the first proceedings”) by Phoenix as plaintiff and LB Business as defendant. Phoenix sought a declaration that the valuation of the redemption price of the units was void and sought another declaration defining the term “market value”.

8. On 17 November 2022, Phoenix lodged a caveat on the title of the Land.

9. On 7 February 2023, the plaintiff filed a lapsing notice to remove the caveat.

10. On 22 May 2023, an order was made in the first proceedings for Phoenix to remove the caveat.

11. The first proceedings were settled by consent on 8 June 2023. The following orders were made: 1. The proceedings be dismissed. 2. Defendant pay the costs of the Plaintiff on a party-to-party basis as agreed or assessed. 3. I note the agreement of the parties set out in paragraphs 1, 2, 3, 4, 5, 6, and 8 of the document which I have initialled and placed in the court file, noting that the type written words in para 6b are followed by agreement of the parties to include the words “from 18 August to the date of payment.”

12. The document attached to the orders says: (Order 3 Note, Agreement between Parties) 1. Within 14 days, the Defendant's solicitor on behalf of the Defendant, is to engage the Australian Property Institute to appoint three valuers with no less than 5 years' experience to value the land as at 18 August 2022. 2. The Defendant is to engage the three valuers referred to in Note 1 within 7 days of receiving their nomination, with those costs to be paid by the unit holders of the Trust in their respective proportions. 3. For the purposes of section 103 of the Trust Deed, the market valuation of the land is the average of the three valuations referred to in Note 1. 4. The Defendant is to engage Frank Lo Pilato of RSM to determine the price per unit in accordance with the terms of the Trust Deed as at 18 August 2022, with Mr Lo Pilato's cost to be paid by the Trustee. 5. Mr Lo Pilato is to determine the price per unit with 30 days of his appointment. 6. Within 90 days of Mr Lo Pilato's determination, the Defendant is to pay the Plaintiff: a. the amount equal to value of the Plaintiff's units b. Interest on the monies in subsection (a), in accordance with the Court Procedure Rules 2006 (ACT) from 18 August 2022 to date of payment. 7. The Defendant is to pay the Plaintiff's costs on a party-party basis, as agreed or assessed. 8. The Defendant, via its solicitor, is to update the Plaintiff via its solicitor, upon completion of each step herein.

13. On 8 August 2023, the caveat was removed.

14. A valuation of the land was undertaken. The plaintiff determined it was required to pay $1,129,822, which was comprised of the valuation amount, interest to 2 February 2024, and costs.

15. On 2 February 2024, the plaintiff paid that amount into this Court’s trust account.

16. On 23 February 2024, the payment was returned by the Court to the plaintiff, and it is currently in the plaintiff’s solicitor’s trust account.

17. On 1 December 2023, while the valuation procedure was progressing, the plaintiff decided to commence proceedings for damages for the losses it says were incurred by the lodging of the caveat. I was informed from the bar table that counsel for the plaintiff noticed the discrepancy as to the identity of the unit holders in the Trust Deed after he received the brief late last year. I observe that this is consistent with the correspondence between the defendants and the solicitors, who, until these proceedings were commenced, did not draw a distinction between the first defendant and Phoenix.

18. In the substantive proceedings, the plaintiff relevantly seeks: (a) A declaration as to the proper identity (either the first defendant or Phoenix) of the unit holder in the Trust. (b) Damages from the first defendant and alternatively Phoenix, resulting from the caveat being lodged, namely: (i) If the correct unit holder is the first defendant, compensation under s 108 of the Land Titles Act 1925 (ACT), or alternatively damages for breaching the Trust Deed by causing Phoenix to lodge the caveat. (ii) If the correct unit holder is Phoenix, damages for breach of the Trust Deed, which prohibits that caveat.

19. The substantive proceedings have not yet been listed for hearing.

Change of name of the plaintiff

20. I will deal firstly with the third order sought. Proposed Order 3 is in the following terms: Pursuant to rule 221(2) of the Court Procedure Rules 2006, the Plaintiff to be substituted with "Bright Property Group Holdings Pty Ltd (ACN 663 102 770) ATF Bright Property Group" (‘Substituted Plaintiff’).

21. The evidence establishes that: (a) On 2 February 2024, LB Business executed a Deed of Amendment to amend the terms of the Trust Deed. The effect of the amendment was to retire LB Business as trustee of the Trust and appoint Bright Property Group Holdings Pty Ltd (ACN 663 102 770) (“Bright Property Group Holdings”) as the trustee of the Trust. (b) Bright Property Group Holdings wishes to maintain these proceedings in its capacity as trustee of the Trust.

Consideration

22. The plaintiff’s application was opposed.

23. The defendants say that any such change would be an attempt to pierce the corporate veil. LB Business as trustee for the Trust was the legal entity which entered into the agreement which formed part of the Court orders on 8 June 2023. The defendants submitted that because Bright Property Group Holdings was not a party to that agreement, it does not have standing to seek the stay of the notation of an agreement where it was not a party to the agreement, and it was not a party to the first proceedings.

24. I do not accept these submissions.

25. Section 6 of the Trustee Act 1925 (ACT) provides that a new trustee may, by registered deed, be appointed in place of a trustee, and all the trust property becomes vested in the new trustee which may in all respects act as if he or she had been originally appointed a trustee by the trust instrument. This means that Bright Property Group Holdings steps into the shoes of LB Business as the trustee of the Trust.

26. Section 20 of the Supreme Court Act 1933 (ACT) and rr 6 and 230(1)(b) of the Court Procedures Rules 2006 (ACT) (“the Rules”) enable this Court to effect the change sought by the plaintiff.

27. I am satisfied that an order should be made for the change of name of the plaintiff.

Stay application

28. Proposed Orders 1 and 2 sought by the plaintiff are as follows: 1. The enforcement of clauses 6 and 7 of the agreement of the parties, noted in the orders of the Court on 19 June 2023, and Order 2 made on 19 June 2023 in proceedings SC429 of 2023, are stayed pending further order of the Court in proceedings SC497 of 2023. 2. The amount of $1,129,822 is to be held in an interest-bearing account by McGilvray until further order of the Court, or the written consent of the parties is obtained. … Consideration

29. The first order sought is a stay.

30. Counsel for the defendants submitted that the plaintiff’s action is misconceived because a notation to consent orders is not an order of the Court so it cannot be stayed. Counsel for the plaintiff agreed and said that the plaintiff was not asking for the stay of a Court order, but for a freezing order.

31. The power to make a freezing order is in r 743(4) of the Rules. It relevantly says: 743 Freezing orders—order against enforcement debtor or prospective enforcement debtor or third party … (4) The court may make a freezing order or ancillary order (or both) against an enforcement debtor or prospective enforcement debtor if satisfied, having regard to all the circumstances, that there is a danger that an order or prospective order will be completely or partly unsatisfied because any of the following might happen: (a) the enforcement debtor, prospective enforcement debtor or someone else absconds; (b) the assets of the enforcement debtor, prospective enforcement debtor or someone else are— (i) removed from Australia or from somewhere in or outside Australia; or (ii) disposed of, dealt with or diminished in value. …

32. The relevant principles were summarised by Bell J in Deputy Commissioner of Taxation v Gashi [2010] VSC 120; 27 VR 127 at 130: In Zhen v Mo, Forrest J set out the principles relevant to the determination of applications for freezing orders, which I gratefully adopt: First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets. Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process. Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order. Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts. Fifth, that before such an order can be made it is necessary that the applicant establish— (a) an arguable case against the defendant; and (b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value. Sixth, the balance of convenience must favour the granting of the freezing order. Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case. Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property. Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court. (Citations omitted.) Whether the plaintiff has an arguable case

33. The first issue is whether the plaintiff has an arguable case against the defendants.

34. Counsel for the defendants submitted that there is no real issue as to Phoenix being the correct defendant because the correspondence between the solicitors shows that this was not an issue. I do not accept this submission. The correspondence between the parties is consistent with the plaintiff only realising that the Trust Deed was ambiguous at around the time that these proceedings were commenced. There is also an obvious inconsistency in the Trust Deed. I am satisfied that the plaintiff has an arguable case in respect of this issue.

35. Counsel for the defendants did not dispute that the plaintiff could claim damages if it had incurred losses as a result of the lodging of the caveat. The submissions turned on whether the claim could have been incorporated into the first proceedings. There is extensive evidence of the loss which the plaintiff says the Trust incurred as a consequence of the caveat being lodged. I am satisfied that the plaintiff has an arguable case in respect of this issue.

36. The defendants say that, as at 8 June 2023, the plaintiff was aware of the issues which are now pleaded in the substantive proceedings and it should have taken steps to amend the first proceedings so that all of the issues were determined at the same time. The defendants say the plaintiff knew, or should have known, before 8 June 2023, that there were inconsistencies in the Trust Deed. The caveat had been lodged on 17 November 2022, and as early as 17 February 2023, six months before the first proceedings were settled, the plaintiff’s solicitor had pointed out in correspondence that the plaintiff would make a claim for any loss caused by the lodging of the caveat.

37. Counsel mentioned an Anshun estoppel (referring to Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) but did not expand on the relevant legal principles.

38. This is not an application by the defendants to have these proceedings struck out on the basis of an estoppel arising from the first proceedings. However, the possibility of the defendants successfully relying on an estoppel is relevant to my determining whether the plaintiff has an arguable case.

39. A party will be estopped if it appears that the matter relied on in the second proceedings was so relevant to the subject matter of the first proceedings that it would have been unreasonable not to rely on it.

40. For the purpose of assessing whether the plaintiff has an arguable case, I consider that there is little prospect of a court finding that the plaintiff is estopped from bringing these proceedings. Most importantly, I think it very unlikely that a court would find the relevant connection between the two cases.

41. In the first proceedings, Phoenix sought declarations relating to the redemption value of its units. These proceedings, as I have said, seek firstly to clarify the identity of one of the three unit holders. Clearly this must be determined to enable the plaintiff to pay the unit holder. Secondly, the defendants claim damages for losses flowing from the lodging of the caveat. Apart from this being unrelated to the subject matter of the first proceedings, the caveat was only removed in August 2023, two months after the first proceedings had been settled. I accept the submission made by counsel for the plaintiff that until the caveat was removed, the plaintiff’s cause of action had not crystalised because it was not in a position to assess what damages, if any, had flowed from the lodging of the caveat.

42. In addition, I take into account that the first proceedings were not determined by the Court, rather, the Court endorsed consent orders.

Whether there is a danger that prospective judgment will be unsatisfied

43. The next issue is whether there is a danger that the prospective judgment in these proceedings will be wholly or partly unsatisfied as a result of Phoenix’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.

44. In determining this issue, I make the following findings: (a) By letter dated 23 January 2024, the plaintiff’s solicitor requested evidence of the defendants’ financial capacity to repay an adverse order in these proceedings. No evidence was provided. (b) Phoenix is a $100 limited liability company and does not own any real property in the ACT or NSW. (c) The only evidence before me is that Phoenix is a company with no significant assets. (d) It was not suggested that there was any legal impediment to Phoenix transferring the funds to a third party.

45. The plaintiff submits that there is a danger that, if the payment is not withheld, it may be dissipated, causing the plaintiff to suffer irretrievable prejudice.

46. I accept this submission and am satisfied that there is a real risk that a judgment debt in the substantive proceedings will go unsatisfied because of the disposal of assets. The proposed order would be directed to preserving assets from being dissipated which would frustrate the Court process.

Balance of convenience and prejudice

47. Next, there are the issues of the balance of convenience and prejudice.

48. Counsel for the defendants submitted that the balance of convenience is in favour of the defendants because the identity of the plaintiff is not certain, and the claim is against one of the two defendants, where the identity of the defendants is not certain, versus the certainty of the defendants having a consent judgment and an agreement in their favour. I did not find this submission of any assistance.

49. Counsel for the defendants also submitted that there was prejudice to Phoenix in being shut out from the benefit of the agreement that was entered into with the plaintiff's full knowledge and agreement, not in bad faith. Subsequently, Phoenix had been met with an application for a freezing order by LB Holdings, which was no longer the trustee of the Trust, and its assets were vested in Bright Property Group Holdings. Consequently, its undertaking as to damages may well be worth nothing. Phoenix could be dragged through another set of proceedings and end up with a costs order in its favour, and then find that LB Holdings has no assets. I consider that this submission misunderstands the legal effect of the change of trustee, which I have already discussed.

50. I accept the submission made by counsel for the plaintiff that Proposed Order 3 provides for the funds to be placed in an interest-bearing account until further order of the Court or paid out in accordance with the written consent of the parties so that the only prejudice to the unit holder is the loss of use of the funds.

51. Counsel for the plaintiff submitted, and I accept, that the total of the amounts claimed in the Statement of Claim is greater than the amount currently held by the solicitor in trust.

Whether there was delay in bringing the application

52. Counsel for the defendants submitted that there had been unacceptable delay in bringing this application. I do not accept the submission. Insofar as this submission relates to the failure of the defendants to have their claims form part of the first proceedings, I have already dealt with this issue.

53. In addition, I am not persuaded that there has been any relevant delay in bringing the application in these proceedings. The Originating Claim was filed by the plaintiffs on 1 December 2023. The value of the Land was determined on 2 February 2024. This application was filed on 7 February 2024.

54. Counsel for the plaintiff informed me that he had been instructed by the director of LB Business and Bright Property Group Holdings to pass on an undertaking that each company gives the usual undertaking as to damages in the terms of r 700 of the Rules.

55. I am satisfied that, as a consequence of my findings, the discretion to make a freezing order in the terms sought by the plaintiff should be exercised. Costs

56. Counsel for the plaintiff sought an order for the costs on this application to be costs in the cause of the substantive proceedings. Counsel for the defendant did not make any submission to the contrary.

Orders

57. For those reasons, the following orders are made: (1) Pursuant to r 221(2) of the Court Procedure Rules 2006 (ACT), the plaintiff in proceedings SC 497 of 2023 is to be substituted with "Bright Property Group Holdings Pty Ltd (ACN 663 102 770) as trustee for Bright Property Group". (2) The enforcement of clauses 6 and 7 of the agreement of the parties, as noted in the orders of the Court on 8 June 2023 in proceedings SC 429 of 2022, are stayed pending further order in these proceedings. (3) The amount of $1,129,822 is to be held in an interest-bearing account by the solicitor for the plaintiff until further order of the Court or the written consent of the parties is obtained. (4) The costs of the plaintiff’s amended application in proceeding filed on 21 February 2024 are to be the parties’ costs in the cause.

I certify that the preceding fifty-seven [57] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Acting Justice Balla Associate: Date: